Gold suffers biggest drop in over 12 years

Spot gold and silver prices have suffered their sharpest sell-off in years as investors have taken profits amid concerns that the precious metals could be overvalued after a recent historic rally, Bloomberg reported.

Spot gold fell 6.3% on Oct. 21, its biggest drop in more than a dozen years, while spot silver fell 8.7%. That came after technical indicators began to signal that the previous price surge may have been overstated.

“A drop of more than 5% is rare,” said Alexander Stachel, a Swiss-based resources investor. “Theoretically, it happens once every hundred thousand trading days.”

The drop abruptly halted the rally that had led gold and silver to record highs last week. Gold’s rally has been largely driven by investor expectations that the Federal Reserve will make at least one more rate cut by the end of the year, as well as a so-called “depreciation trade,” in which investors have been dumping sovereign debt and currencies to protect themselves from runaway budget deficits.

Frank Monkem, head of macro trading at Buffalo Bayou Commodities, attributes the gold “pullback” to a combination of fairly strong technical indicators. He sees “strong support” at $4,000-$4,050 and predicts a resumption of price gains after a pullback from overbought positions. “The clearing of positions should prepare us for the next phase of growth, led by ETFs and central bank flows into emerging markets,” Monkem said.

According to Helen Amos, a commodities analyst at BMO Capital Markets, the record bullion price rally since September was largely driven by those who followed the market trend. Such trading “naturally has the potential to go the other way once we see in a couple of days that prices are going up.”

An additional factor reducing the appeal of precious metals has been a strengthening dollar. On Tuesday, gold was trading at $4,125.22 an ounce and silver at $48.71 an ounce on the New York Mercantile Exchange.

However, by the morning of October 22, spot gold had risen 0.5% to $4,145.35 an ounce. On Tuesday, bullion fell more than 5%, its biggest drop since August 2020. U.S. gold futures for December delivery rose 1.2% to $4,159.60 an ounce. Spot silver rose 0.5% to $48.95 an ounce. Platinum fell 1.1% to $1,534.20, while palladium rose 1.4% to $1,427.13.

Tags: prices